Deck 9: Profit Planning and Flexible Budgets

Question 1

A firm acquires information that can be used to improve decision making from a budgetary system.

Answer 1

True

Question 2

Planning is looking ahead to see what actions should be taken to realize particular goals.

Answer 2

True

Question 3

Communication and coordination are served by budgets.

Answer 3

True

Question 4

A large difference between actual and planned results is feedback that the system is providing adequate control.

Question 5

The output of the cost of goods sold budget is entered into the pro forma balance sheet.

Question 6

Budgets identify objectives and the actions needed to achieve them because they are foresighted financial plans.

Question 7

The master budget is typically a comprehensive financial plan for the organization for the past fiscal year.

Question 8

There are as many direct materials purchases budgets as there are products.

Question 9

The department manager reviews the budget, provides policy guidelines and budgetary goals, and resolves differences that arise as the budget is prepared, approves the final budget, and monitors the actual performance of the organization as the year unfolds.

Question 10

The budget director is the person responsible for directing and coordinating the organization's overall budgeting process.

Question 11

Comparing actual results with budgeted results on a periodic basis provides control in a budgetary system.

Question 12

The production budget is prepared in units and in dollars.

Question 13

A continuous budget is a moving 12-month budget.

Question 14

A strategic plan identifies strategies for future activities and operations, generally covering at least five years.

Question 15

Control is achieved by comparing actual results with budgeted results on a periodic basis.

Question 16

The master budget is composed of operating budgets and financial budgets.

Question 17

A firm should develop a strategic plan before preparing a budget.

Question 18

The first budget to be prepared is the sales budget.

Question 19

The direct materials purchases budget is based on the sales budget.

Question 20

Budgets are financial plans for the future.

Question 21

The cash budget includes the beginning balance of cash, cash receipts, cash disbursements, and the ending balance of cash.

Question 22

Budgets should be based on ideal standards to encourage everyone to reach for the highest level of performance.

Question 23

The sales budget is used directly in the development of the production budget.

Question 24

Which of the following is true of budgeting?

A) Budgeting forces management to plan for the future.
B) Budgeting creates a plan of action only in terms of production units.
C) Budgeting eradicates the need for keeping a buffer against uncertainties in demand.
D) Budgeting relies on the control cycle to design the planning cycle for future action.
E) Budgeting focuses only on long-term objectives as covered by the planning cycle.

Question 25

Pseudoparticipation is one of the potential problems with participative budgeting.

Question 26

Cash budgets are often prepared monthly or even weekly.

Question 27

Myopic behavior is one of the advantages of participative budgeting.

Question 28

The direct labor budget includes: units to be produced, direct labor time needed per unit, and total direct labor cost for the period.

Question 29

Monetary incentives include salary increases, bonuses, and promotions.

Question 30

A static budget is a budget for a particular level of activity.

Question 31

If the initial cash budget indicates a cash deficiency, the company must go out of business.

Question 32

In preparing the direct labor budget, the average wage rate is used to calculate total direct labor cost.

Question 33

Static budgets are the best benchmarks for preparing a performance report.

Question 34

Individual behavior that is in basic conflict with the goals of the organization is called goal congruence.

Question 35

An after-the-fact flexible budget allows managers to generate financial results from a number of potential scenarios.

Question 36

Cash receipts must be at least as much as sales.

Question 37

Before-the-fact flexible budgets give expected outcomes for a range of activity levels.

Question 38

A static budget compares actual cost with budgeted costs.

Question 39

Ideally, managers are held accountable for controllable costs.

Question 40

The selling and administrative expenses budget is part of the operating budgets.

Question 41

Which of the following is true of budgets?

A) Budgets eradicate the need to compare a company's actual results with budgeted results.
B) Budgets ensure that the financial goals set by management are achieved.
C) Budgets rule out the need to communicate and coordinate the plans of the organization to each employee.
D) Budgets are financial plans for the future.
E) Budgets delegate the decision making power to the employees.

Question 42

Which of the following budgets are needed to calculate a budgeted unit cost?

A) Direct materials purchases budget
B) Direct labor budget
C) Overhead budget
D) Direct materials purchases budget and overhead budget
E) Direct materials purchases budget, direct labor budget, and overhead budget

Question 43

The master budget is

A) the selective financial plan for the organization as a whole.
B) typically for a 1-year period corresponding to the fiscal year of the company.
C) broken down into daily and weekly budgets.
D) used for misinformation and coordination.
E) all of these.

Question 44

Which of the following is a use of budgets for control?

A) Plans can be made for the future.
B) If conditions change between the formation of the budget and the current time, budgets can be quickly adapted.
C) Budgets set a standard against which results can be compared.
D) Communication is improved.
E) All of these.

Question 45

The ____ is the person responsible for directing and coordinating the organization's overall budget process.

A) budget master
B) controller
C) chief financial planner
D) budget director
E) chief accountant

Question 46

Which of the following statements is true?

A) The overhead budget is typically composed of variable overhead and fixed overhead.
B) The direct labor budget uses an average wage rate for direct labor.
C) The production budget is not converted into dollars.
D) The sales budget includes both units and dollars.
E) All of these.

Question 47

The first step in creating the master budget is the creation of the

A) production budget.
B) direct labor budget.
C) cash budget.
D) sales budget.
E) budgeted income statement.

Question 48

Omega Enterprises budgeted the following sales in units:
Omega's policy is to have 30% of the following month's sales in inventory.On January 1, inventory equaled 8,000 units.February production in units is:

A) 20,000.
B) 28,000.
C) 40,000.
D) 26,500.
E) 36,000.

Question 49

Which of the following is true of a continuous budget?

A) It forces managers to plan ahead constantly.
B) It is broken down into quarterly and monthly budgets.
C) It rules out the comparison of actual data with budgeted data.
D) It is a quarterly budget used only by manufacturing firms.
E) It is a moving 6-month budget.

Question 50

Depreciation expense on sales equipment appears in a separate line on which of the following budgets?

A) Cash budget
B) Selling and administrative expenses budget
C) Direct labor budget
D) Production budget
E) Overhead budget

Question 51

The ending finished goods inventory budget supplies information needed for the

A) sales budget.
B) cash budget.
C) budgeted income statement.
D) cost of goods sold budget.
E) all of these.

Question 52

Which of the following is true of the master budget?

A) Monthly budgets are derived by dividing the master budget by 12.
B) Fixed costs cannot change from one month to another.
C) Variable costs cannot change from one month to another.
D) The master budget can reflect seasonal effects.
E) None of these.

Question 53

In preparing the overhead budget, many companies use

A) activity-based costing.
B) multiple drivers for a simple budget.
C) participative costing.
D) a unit-based driver such as direct labor hours.
E) none of these.

Question 54

The selling and administrative expenses budget includes

A) cost of goods sold.
B) overhead.
C) fixed production expense.
D) variable cost of selling.
E) all of these.

Question 55

Budgeted operating income includes

A) budgeted interest expense.
B) budgeted income taxes.
C) budgeted cost of goods sold.
D) budgeted net income.
E) none of these.

Question 56

Direct materials needed for production is calculated by

A) multiplying units to be produced by direct materials per unit.
B) subtracting units to be produced from direct materials per unit.
C) dividing units to be produced by direct materials per unit.
D) adding units to be produced to direct materials per unit.
E) subtracting direct materials per unit from units to be produced.

Question 57

The budget that describes how many units must be produced in order to meet sales needs and ending inventory objectives is the

A) production budget.
B) direct materials purchases budget.
C) cash budget.
D) budgeted income statement.
E) none of these.

Question 58

Which of the following budgets can be used for control?

A) Production budget
B) Cash budget
C) Budgeted income statement
D) Selling and administrative expense budget
E) All of these

Question 59

Looking ahead to see what actions should be taken to realize particular goals is:

A) planning.
B) directing.
C) decision making.
D) coordinating.
E) controlling.

Question 60

Which of the following is not true?

A) The sales forecast is done before the sales budget.
B) The master budget is the comprehensive plan for the organization as a whole.
C) The production budget is prepared in units and dollars.
D) One approach to forecasting sales is the bottom-up approach.
E) In creating the sales forecast, outside factors such as the state of the economy, should be considered.

Question 61

Workshape Company budgeted 250,000 units of production for June, 260,000 units for July, and 320,000 units for August.Each unit requires 0.30 direct labor hours.How many direct labor hours are budgeted for August?

A) 50,000 direct labor hours
B) 5,000 direct labor hours
C) 96,000 direct labor hours
D) 52,500 direct labor hours
E) 300,000 direct labor hours

Question 62

Wright & Boyle Company budgeted the following production in units for the second quarter of the year:
Each unit requires five pounds of raw material.Wright & Boyle's policy is to have 20% of the following month's production needs for materials in inventory.This policy was met in March.Raw materials purchases budgeted for May in pounds equal:

A) 219,000 pounds.
B) 202,400 pounds.
C) 45,600 pounds.
D) 171,600 pounds.
E) 225,600 pounds.

Question 63

A company expects the following sales for the coming year:
Budgeted sales revenue for the year is:

A) $1,050,000.
B) $1,260,000.
C) $1,155,000.
D) $1,680,000.
E) It is impossible to tell from this information.

Question 64

A company has had stable sales and production for several years.Next year, sales are expected to increase by at least 50%.Assuming that the company maintains its policy for desired ending inventories of finished product and direct materials purchases, what will be the likely effect on the desired ending inventory of finished product?

A) It will increase
B) It will decrease
C) It will stay the same
D) It will be twice the size of the desired ending inventory of raw materials
E) None of these

Question 65

A company requires 220 pounds of plastic to meet the production needs of a product.It currently has 25 pounds of plastic inventory.The desired ending inventory of plastic is 70 pounds.How many pounds of plastic should be budgeted for purchasing during the coming period?

A) 195 pounds
B) 265 pounds
C) 245 pounds
D) 290 pounds
E) 175 pounds

Question 66

Saphire Company budgeted the following production in units for the second quarter of the year: ?
?
Each unit requires four pounds of raw material.Saphire's policy is to have 30% of the following month's production needs for materials in inventory.This policy was met in March.Desired ending inventory for April in pounds equals:

A) 45,600.
B) 11,400.
C) 10.500.
D) 38,300.
E) 54,000.

Question 67

Excellent Company manufactures lamps.The estimated number of lamp sales for three months are as follows: Finished goods inventory at the end of July was 3,600 units.Ending finished goods inventory is budgeted as 30% of the next month's sales.Excellent expects to sell the lamps for $30 each.In November, sales are projected at 18,000 lamps.How many lamps should be produced in September?

A) 11,000 lamps
B) 10,500 lamps
C) 14,000 lamps
D) 15,700 lamps

Question 68

A company plans on selling 500 units.The selling price per unit is $10.There are 60 units in beginning inventory, and the company would like to have 100 units in ending inventory.How many units should be produced for the coming period?

A) 540 units
B) 400 units
C) 365 units
D) 2,000 units
E) 2,035 units

Question 69

In budgeting direct labor hours for the coming year, it is important to

A) multiply production in units by the direct labor hours per unit.
B) divide production in units by the direct labor hours per unit.
C) subtract production in units from the direct labor hours per unit.
D) subtract direct labor hours per unit from production in units.
E) multiply production in units by the labor wage rate.

Question 70

Sleepgood Company produces and sells pillows.It expects to sell 15,000 pillows in the next year and will have 1,500 pillows in finished goods inventory at the end of the current year.Sleepgood would like to complete operations next year with at least 1,350 completed pillows in inventory.There is no ending work-in-process inventory.The pillows sell for $6 each.How many pillows would be produced in the next year?

A) 10,000 pillows
B) 16,500 pillows
C) 11,250 pillows
D) 14,850 pillows

Question 71

Kenner Company produces two products: SR200 and TX500.Budgeted sales for four months are as follows:
Kenner's ending inventory policy is that SR200 should have 15% of next month's sales in ending inventory and TX500 should have 40% of next month's sales in ending inventory.On May 1, there were 1,200 units of SR200 and 9,000 units of TX500.
TX500 requires 6 units of component A.(SR200 does not use component A.) There were 30,000 units of component A in inventory on May 1.Kenner wants to have 20% of the following month's production needs in inventory for Component A.

-How many units of TX500 are budgeted for production in June?

A) 47,600
B) 34,800
C) 32,000
D) 45,000
E) 12,800

Question 72

Which of the following formulas is used to compute the units to be produced?

A) Units to Be Produced = Expected Unit Sales - Units in Desired Ending Inventory
B) Units to Be Produced = Units in Beginning Inventory + Units in Ending Inventory
C) Units to Be Produced = Units in Desired Ending Inventory + Units in Beginning Inventory - Units in Ending Inventory
D) Units to Be Produced = Expected Unit Sales + Units in Desired Ending Inventory - Units in Beginning Inventory

Question 73

A company provided the following information on sales for the coming year:
Assume that the beginning inventory is 4,000 units, and that the company policy is to have 30% of the next quarter's sales in ending inventory.Which of the following quarters will have the lowest production?

A) Quarter 4
B) Quarter 3
C) Quarter 2
D) Quarter 1
E) All quarters have the same production

Question 74

Unicorn Corporation manufactures boxes.The estimated numbers of boxes sold for the first three months of the current year are as follows: Finished goods inventory at the end of December was 800 units.Ending finished goods inventory is equal to 25% of the next month's sales.Unicorn Corporation expects to sell the boxes for $5 each.April sales are projected at 4,500 boxes.How many boxes should be produced in February?

A) 4,900 boxes
B) 4,200 boxes
C) 4,260 boxes
D) 3,900 boxes

Question 75

Which of the following is an operating budget?

A) Budgeted statement of cash flows
B) Capital expenditures budget
C) Budgeted income statement
D) Cash budget

Question 76

A company has provided a sales budget for the next four months.It bases its production budget on the sales budget, and has a policy that each month's ending inventory of finished product must be equal to 25% of the following month's sales needs.The direct materials purchases budget is based on the production budget.The company's policy for each month's ending inventory of raw materials is that they must be equal to 10% of the following month's production needs for raw materials.Given this information, the company can prepare direct materials purchases budgets for how many months?

A) One
B) Two
C) Three
D) Four
E) Five

Question 77

In going from the sales budget to the production budget, adjustments to the sales budget need to be made for

A) finished goods inventories.
B) cash receipts.
C) factory overhead costs.
D) selling expenses.

Question 78

Which of the following is the most common starting point in the information gathering process for budgeting?

A) The personnel forecast
B) The sales forecast
C) The production forecast
D) The projected income statement

Question 79

Unique Company provided the following budgeted data for July:
What is the budgeted cost of goods sold?

A) $165,000
B) $179,000
C) $214,000
D) $184,000
E) $75,000

Question 80

A production budget is most important for which of the following?

A) retail stores
B) manufacturing firms
C) not-for-profit agencies
D) local government agencies
E) all of these